Yesterday we saw home sales numbers come in lower than expected. The market was anticipating existing home sales in the month of December to be 5.52M with a month over month decline of 1.6%. Reports showed a deeper slowdown however with 5.49M homes sold and a month over month decline of 2.8%. At first glance one would assume this to be bearish news for the industry however unless you’ve been living under a rock you’re well aware that the housing market is as hot as hot could be right now with inventory basically non-existent. In fact, while these sales numbers were slightly lower than anticipated what dwarfed this negative news for the home market was data also being released that inventory now stands at a 17-year low.   In summary,  supply has been soaked up to levels not seen since 1999. When supply decreases, and demand is strong, prices go up. Homebuilding stocks responded accordingly.

I post this to simply relay further evidence of the coming inflation train that is speeding at us very quickly. Ironically, at the same time as this news is breaking, confirming our inflation thesis, the market responds with a ramp towards new all-time highs lead by none other than…..wait for it…..commodity stocks. That’s right. All signs point to inflation and what responds the best are those asset classes designed to rise when inflation rears its ugly head.

All this data suggests that the Fed is behind the curve and in an attempt to promote growth will not be overzealous in their raising rates and will let inflation heat up quite a bit before they step in and press on the breaks. Let’s enjoy the ride now because at some point we’ll have to hop off the train and jump on the sidelines for safety.